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General Body Meeting

9/1/2010. General Body Meeting. Agenda. Welcome back Introduction to the team Club operations Previous investment pitches Opportunities to get involved Conclusion. The executive board. Jeffrey Hau Daniel Sherry Akshay Nagia Chirag Shah Melody Chu John Yoshida Jai Reddy.

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General Body Meeting

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  1. 9/1/2010 General Body Meeting

  2. Agenda • Welcome back • Introduction to the team • Club operations • Previous investment pitches • Opportunities to get involved • Conclusion

  3. The executive board • Jeffrey Hau • Daniel Sherry • AkshayNagia • Chirag Shah • Melody Chu • John Yoshida • Jai Reddy • Samantha Dong • Terence Hu • Derek Creadore • Andrew Verri • David Wong • David Shim • Scott Deuschle

  4. What does our club do? • Manage money • ~$50,000 portfolio • Value orientation • Long/short equity • Educate • Semester-long training program designed by Dan Sherry • Great for new members • Teaches fundamental principles

  5. Analyst teams • Senior Analyst • Have strong knowledge of industry • Generate investment ideas • Approve additions to conviction list • Manage pitch process Senior Analyst Junior Analyst Junior Analyst Junior Analyst • Junior Analyst • Compile weekly industry news • Propose new companies to add to conviction list • Do fundamental research to put investment pitches together • Help monitor current holdings

  6. Other ways to get involved • Newsletter • Monthly editions • Three types of articles: investment pitches, new club initiatives, opinions on the economy • Writing for the website (blogging) • More flexibility than newsletter • More opinionated • Research reports • Opportunity to produce investment theses

  7. So how do we choose our investments?

  8. TBFShort 20+ Year Treasury Daniel Sherry

  9. Original Thesis X X - X X • 10 year treasury rate at purchase: 3.42% • 10 year rate now: 2.47%

  10. Monetary & Fiscal Policy • Monetary Policy: Never really as loose as we thought it was. • Interest on reserves – 0.25% • Monetary aggregates • No tightening anytime soon – possible loosening • Fiscal Policy: you don’t have to outrun the bear… • Euro trouble

  11. M0 Money Supply

  12. M1 Money Supply

  13. M2 Money Supply

  14. Saving, Capex, and Inflation • Personal saving: not exciting. • Capital investment: not picking up like we thought. • Inflation expectations: subdued, to say the least. 5-year market inflation expectations

  15. Looking Forward • Fed’s options • Explicit medium-term inflation target • Lower the interest on reserves • Additional quantitative easing • Do nothing – continue promising to keep rates low “for an extended period” • None of these will increase rates, at least in the short term.

  16. HXMHomex Jai Reddy

  17. Original Pitch • Thesis: Improvement in macroeconomic variables coupled with Homex’s competitive position makes for a substantial growth opportunity • Macro variables: • GDP, employment, wages • Important for earnings acceleration and mortgage origination • Competitive position • Leader in low income/entry level housing • Geographically diverse • Efficient building processes

  18. 2010 Market Expectations and Implications • Economic growth to swing from -7% to 3% in 2010 • Employment to expand 2.3% after drop of 3.9% in 2009 • Demand side • Growing salaries improve mortgage affordability • Employment growth increases potential size of homebuyers market • Supply side • Infonavit’s funding comes from taxes on salaries

  19. What changed? • Q4: Weak quarterly sales • Change to a more conservative strategy • No geographic expansion during Q4 • Downgrades by analysts • Though these may sound like too many negatives, they are all effects of a strategy to improve working capital management and free cash flow generation

  20. Recent events & looking forward • Strong revenues and margins in Q210 • Due to strategically focusing in more profitable areas/demographics • Increases in FCF as planned part of their strategy • Increase in EBITDA • Potential Catalysts • Surprises in economic growth expectations • Problems with technologies and leadership control • Changes in targets for mortgage origination

  21. CSCOCisco John Yoshida

  22. Cisco Systems, Inc. • Designs and sells technology and service for electronics, networking and communications • Founded in 1984 developing and selling routers

  23. Original Thesis (February 2010) • Next-generation technologies are poised to take advantage of both existing and new markets • Strong cash equivalents will lead to key strategic acquisitions

  24. Performance

  25. Earnings Update • EPS slightly beats expectations but… • Sales forecast miss expectations • “Unusual uncertainty” and “Mixed Signals” • Company hiring employees NO CHANGE IN THESIS

  26. TEVATeva Pharmaceuticals Samantha Dong

  27. TEVA- Overview • Originally pitched Nov 3, 2008 • World’s largest generic drug maker • Market Cap: $47.37 BN • Generic and branded pharmaceuticals, active pharmaceutical ingredients (APIs) • Principal Products: Copaxone • Original thesis: • Upside: Recession proof, industry leader, diversified pipeline, political environment, patent expiration • Downside: Growing competition

  28. TEVA- Performance • Since pitched: • Purchased: $43.02; sold half position @ ~$60 • Current price: $50.621 • Since summer: 1 As of market close on 8/31/2010

  29. TEVA- Recent News • Growth • Licensed branded cancer drugs • Acquisition with Ratiopharm: Europe footprint • Q2 Earning • up 53%, boosted by Copaxone sales • FDA approved the first generic version of Lovenox • Sanofi-Aventis’ blood clot treatment • Concern about generic version of Copaxone

  30. Applications • Junior analyst applications will be accepted until September 10th • Apply online at www.cornell-micc.com • Please speak with me if you’d like to get involved in other ways

  31. Brain teaser • Three players enter a room and a red or blue hat is placed on each person’s head. The color of each hat is determined by a coin toss, with the outcome of one coin toss having no effect on the others. Each person can see the other players’ hats but not his own. • No communication of any sort is allowed, except for an initial strategy session before the game begins. Once they have had a chance to look at the other hats, the players must simultaneously guess the color of their own hats or pass. The group shares a hypothetical $3 million prize if at least one player guesses correctly and no players guess incorrectly. • The general problem is to find a strategy for the group that maximizes its chances of winning the prize.

  32. Answer • Come to the next meeting to find out…

  33. Conclusion • Next general body meeting will be Sept 15thwhere we will announce our junior analysts • First training session will be Sept 8th • Thanks for stopping by!

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